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January 10, 2010

The Federal Circuit's Wyeth v. Kappos Decision

The Federal Circuit last week affirmed the D.C. District Court's decision contradicting the Patent Office interpretation of 35 U.S.C. § 1.54(b) regarding patent term adjustment (see Patent Docs report).This decision is worthy of some thought regarding the status and nature of the Federal Circuit's supervisory role over Patent Office rules and decisions, and what motivates the Office when it interprets and implements the patent statutes.

The almost plenary nature of the Federal Circuit's supervisory role over the Patent Office was severely limited by the Supreme Court's Dickinson v. Zurko decision ten years ago.The Court held that the Federal Circuit's review of factual determinations by the Patent Office was governed by the Administrative Procedures Act, wherein such decisions were reviewed for substantial evidence.Until today, the only other opportunity for the Federal Circuit to opine on the scope of Patent Office authority was in Tafas v. Doll, where a divided panel found that the infamous claims and continuation rules were procedural in nature and thus within the scope of 35 U.S.C. § 2(b).In the Tafas decision, only Rule 78 (limiting the number of continuations that could be filed even in currently-pending applications) was held to be outside the scope of Patent Office authority, because it was in direct conflict with 35 U.S.C. § 120.However, this decision was mooted by joint motion between the Office and GlaxoSmithKline to have the panel opinion vacated.

The Federal Circuit's decision in Wyeth was written by the next Chief Judge (Judge Rader) and joined by a senior status judge (Judge Plager) and the newest member of the Court (Judge Moore), joining together the past, present, and future of the Federal Circuit bench.In affirming the District Court, the panel agreed with that lower court's succinct characterization of the problem with the Patent Office's approach: "[t]he problem with the PTO's interpretation is that it considers the application delayed under [the B guarantee] during the period before it has been delayed" (emphasis in original).The panel held that under the plain meaning of the statute, the "B" delay period cannot begin until three years after an application's filing date, and thus any "A" delay prior to that date cannot overlap with "B" delay and must be added to it in determining the proper length of any patent term adjustment.

The panel focused on the change in interpretation made by the Office in 2004, where the term "period of adjustment" was changed to "period of delay" in the rule (37 C.F.R. § 1.703(b)) implementing the statute.For applications entitled to periods of "B" adjustment, the Office interpreted the rule to define "overlap" of the "A"-delay and "B"-delay periods to extend from the filing date, rather than from 3 years after the filing date.As a consequence, beginning in 2004 the Office chose the greater of the "A" delay period or the "B" delay period in determining the length of the PTA period, and defined any "A" delay within the first three years after filing as overlapping (and thus not available for patent term adjustment).

While certainly not particularly noteworthy in outcome, the decision hies back to the time when the Federal Circuit was assertive in deciding "what the law is" when it comes to the patent statute.There is not a single citation in the opinion to a Supreme Court case on substantive patent law, and the panel forthrightly asserts its interpretation of the statute and its authority to make this determination in the face of a contrary view by the Office.

From the Office's perspective, it may be instructive to assess the reasons behind its parsimonious interpretation of the rule.According to the panel opinion, the plain language of the statute, as well as the legislative history, evinced a Congressional intention to restore to patent holders term lost as a result of the change in U.S. law implementing the provisions of the GATT treaty.The legislation implementing the patent provisions of the GATT treaty changed the term of a U.S. patent from 17 years from grant to 20 years from its earliest priority date. (The opinion quotes the legislative history, that "[t]hus, no patent applicant diligently seeking to obtain a patent will receive a term of less than the 17 years as provided under the pre-GATT standard; in fact, most will receive considerably more," citing H.R. Rep. No. 106-464, at 125 (1994) (emphases added).)Despite this clear evidence that the purpose of the statute requires an expansive reading, the Office chose (four years after the fact) to implement the rules so that patentees would not receive the benefit of "considerably more" patent term adjustment, by deciding to choose between the greater of the length of "A" delay and "B" delay, rather than adding both types of delay together and subtracting any "A" delay periods that occurred more than three years after the patent filing date (i.e., during the "B" delay period as interpreted by the Court).

Of course, the initial impetus for the Office's interpretation can be understood as a bureaucratic response intended to reduce the extent to which the Office could be criticized for delay in granting patents and prolonged patent application pendency.Under the statute, "A" delay periods are the direct result of Office failure to meet the timing requirements for promulgating a first substantive Office Action, for responding to Applicant's amendments and arguments submitted in response to Office Actions, and to issue a patent timely after payment of the issue fee.These periods are set by statute, not by the Office, and thus are not amenable to adjustment by the agency in response to changed conditions.Indeed, the Office argued that the statute was based on the average patent prosecution pendency times -- about 25 months -- that existed at the time the statute was enacted into law.The panel rejected this contention, saying there was no basis for this interpretation in the language of the statute.

In view of the timing of the Office's change in its interpretation of how the statute should be implemented, one would do well to remember the sea change the Office experienced during this period.Spurred by the influx of patent applications relating inter alia to the Human Genome Project and of business method patents as a result of the Court's State Street decision, the number of patents pending, and the pendency times for those applications, escalated rapidly in the 2000-2004 time period.This formed the beginnings of the infamous "backlog" of pending applications that motivated productive (large increases in patent examiner hiring) and unproductive (the claims/continuations rules) responses by the Office.Under these circumstances, the amount of "A" delay accumulating during the first three years of patent pendency also rapidly escalated: the Office simply did not have the resources to handle the increased number of applications according to the statutory timetable.Also during these years (2000-2004), Congress continued to raid Patent Office coffers to fund other government programs (including, inter alia, two wars and a large increase in national security-related expenditures in response to the 9/11 tragedy).Thus, it was understandable (if not justifiable) that the Office bureaucracy would believe that patent term adjustment due to "A" delay was a reflection on its inability to timely prosecute pending applications, and to interpret the statute in a way that would minimize the contribution of "A" delay periods to patent term adjustment times.

There is also a political aspect to the Office's decision to reduce PTA by effectively eliminating "A" delay during the first three years of application pendency.The years between 2000-2004 coincided with several studies (notably, by the Federal Trade Commission and National Academies of Science) that identified problems and inefficiencies with the U.S. patent system.In addition, commentators, academics, and the "high technology" community joined in this chorus, contending that the U.S. patent system was "broken" and in need of reform (allegations that prompted the perennial and so far unsuccessful efforts in Congress to pass patent reform legislation).Also during this time, Jon Dudas became Director, politicizing the Office (recall for example allegations of improper influence by the Canadian government on the NTP v. RIM case and re-examination of the NTP patents) and fostering an "us against them" stance regarding patent practitioners (and their clients, to a large extent).Under these circumstances, the political motivation to reduce patent term was strong, thus avoiding yet another ground for critics to castigate Office personnel (and more importantly, management) for inefficiency and incompetence.This motivation also appears to have been sufficient to provide an understandable (if reprehensible) basis for an interpretation of the statute so totally contrary to its plain language.

But all that has changed, of course, with the installation of Director Kappos (evidenced for example by cancellation of the claims and continuation rules and abandonment of the appeal of Tafas v. Kappos to the en banc Federal Circuit, among other things).That sentiment will face a test of its veracity (or whether it is just wishful thinking) when the Office announces its response to the Federal Circuit's decision in Wyeth.

Admittedly mentioned in passing, but the en banc court could have merely affirmed the panel opinion (look at the Enzo v Genprobe decision by the en banc panel that just sent it back for the original panel to get it right - under the circumstances, if the majority of the judges in Tafas had decided that the original panel was correct there would be little need to speak broadly on the issue). It was only when the court granted the motion to abandon the appeal en banc (and denied the motion to vacate the district court opinion) that the Federal Circuit had no opinion on the record in the matter.

But you are correct that I could have said it more clearly. Thanks for the clarification.

The PTO now has 90 days from the decision to appeal to the SupCt. Any thoughts on whether that's likely to happen here? The CAFC decision appears to be a remarkably clear slap on the PTO's wrist about its interpretation of the statute (not to mention its lack of authority to act) and it would seem unlikely that the DOJ would push this one farther up the chain; still, as it considers its options, I wonder how many more Wyeth petitions will be dismissed between now and April 7...

The USPTO could petition for certiorari, but after it rescinded the rules and sought to dismiss the en banc appeal in Tafas, I would be a little surprised. The USPTO seemed to have a better deference case in Tafas than it does in Wyeth. I agree, however, that we may get a hint of what is to come by watching how the Office handles recent requests for reconsideration of PTA. Thanks for the comment.

But keep in mind that the district court said that the PTO's argument was a reasonable interpretation of the statute, but the court believed its interpretation was at least as correct.

One reason the Solicitor might file the cert petition would be the strength of the CAFC smack-down - the panel did not take the sting out of the rebuke to the Office's statutory interpretation, and unlike the district court affirmatively stated that they thought the Office's interpretation was "strained" and clearly incorrect.

Point of clarification - the district court said the policy behind the Office's interpretation (not permitting double-recovery of time lost due to prosecution) was reasonable, but interpreted the statute as the CAFC affirmed.

But the district court was less harsh in its rejection of the Office's interpretation. We'll see if that makes a difference; the situation is sufficiently limited that it is unlikely to provoke a cert petition as a general protection of administrative agency statutory interpretation, and as Don points out it would be contrary to the way Director Kappos has handled these sorts of disputes in other areas (like the Tafas case, where the Office stood to benefit from the court's expansive reading of its procedural rulemaking authority).

Or maybe the Office heard that the en banc court was going to go the other way on the question. We will only know if a similar question comes up (and in view of what provoked the last one, let's hope we never will).

"Or maybe the Office heard that the en banc court was going to go the other way on the question."

Kevin,

I will use your own line to reaffirm my initial post and say this is a hunch as to why Kappos pulled the plug on the continuation rules. As you point out, Kappos had more riding on that earlier decision and was seemingly coming off of a victory with the smaller panel. It seems very unlikely to have pulled out then and yet to go to the mat on this one.

The reason why the earlier turn of events should be kept in mind is precisely why I am comfortable with my hunch. Kappos played the odds and figured that a chance at vacatur was better than the inside word of a complete en banc smackdown. GSK even went along with the move to vacatur (for the life of me, I cannot figure out why). I am extremely pleased that Tafas held his ground.

I also want to dissuade anyone from giving even a smidgeon of credibility to the continuation rules panel decision. That decision has ZERO legal weight and deserves ZERO legal weight.

it does indicate how those particular judges felt about the issue. I don't think you can unring the bell, and I think Kappos understood 1) that the c&c rules were dead because even the panel decision said Rule 78 was substantive (and without that rule the others were a waste of time with regard to the impetus for the rules in the first place i.e., the backlog); 2) the Office's problem isn't the backlog so much any more as the decreased revenues and reduced filing frequency, again blunting the need to the C&C rules in the first place; 3) that the rules were dead because the OMB said they were (no matter what the en banc court had to say) and 4) that abandoning the appeal was a politically-popular thing to do.

So while I agree, I also don't think we should ignore the panel opinion, either.

"I will use your own line to reaffirm my initial post and say this is a hunch as to why Kappos pulled the plug on the continuation rules. As you point out, Kappos had more riding on that earlier decision and was seemingly coming off of a victory with the smaller panel. It seems very unlikely to have pulled out then and yet to go to the mat on this one.

The reason why the earlier turn of events should be kept in mind is precisely why I am comfortable with my hunch. Kappos played the odds and figured that a chance at vacatur was better than the inside word of a complete en banc smackdown. GSK even went along with the move to vacatur (for the life of me, I cannot figure out why). I am extremely pleased that Tafas held his ground."

I think my reasoning is a more explanation of what happened. If you were a man, then you would know so.

I grant that the panel deicsion does have some minor worth. It shows which CAFC judges to keep an eye on. And while I cannot unring a bell - I know which bell makes the louder, more permanent, and oh by the way, the current Legal Noise - this time a Noise that is Law (sorry for the inside joke - those who know, know I couldn't resist).

I don't buy the backlog as a driver one single bit. The thought that as you say that the one rule was missing made the package incomplete is compelte nonses as well. Witht he vicotry at the panel level, it would have been NOTHING to reformulate the one missing rule to obtain what they wanted. In fact, with the power switch of the bulk of examination to the applicant, the Office was set to reduce backlog even without the last rule. Sorry, but your explanation doesn't wash. The move was a power play pure and simple, an illegal power grab and there are similar smackdowns of the Office power grabs before "backlog" was a dirty word. Even now in a time as you say the focus is elsewhere, the Office's strong armed minions (BPAI) still power grab. The Office lost a battle, but the war is still on - it's just on different battlefields.

As to your point 3), I keep on waiting for some word that the Office Counsel is being investigated for the actions of continuing the illegal power grab after knowing that the OMB had the rules in a deathgrip. How can the counsel get away with not informing the court or opposing counsel of such material knowledge?

OK, let's assume you are correct about the Office's motivation - what would be the benefit of the "power grab?" The effect of the rules would have been fewer applications, since no one would file an ESD on anything expected to be commercialized. Ironically, if the rules had been implemented we would probably be in the same place we have been in since the rules were promulgated- a dramatically-reduced allowance rate, fewer filings and lower PTO revenues. So what do you perceive as the point of the "war" of not to improve Office statistics?

I am uncertain by what you mean as "So what do you perceive as the point of the "war" of not to improve Office statistics?"

That is not the war I refer to. The war I refer to is the Office wanting to control and rewrite patent law so that they set ALL the rules and could do whatever they wanted to do. While the ESD effect would have been extremely bad for the Office, as many of the bar commented, that bit of logic in itself does not refute in any manner the "plan" of the Office. The Office does many things which befuddle me in that they seem to actively seek to make the Office itself meaningless and to "close the doors". Perhaps this is why the famous quote to Charles H. Duell has such vibrancy, as well as the phrase "The Office puts the NO into inNOvation" rings so true (at least up until recently when Kappos flatly stated that quality does NOT equal rejection. A shame it actually took the Boss to come out and state such a thing, isn't it?

Agreed about it being a pity Kappos had to remind the corps that their job wasn't just to reject, but in view of the mismanagement of the previous administration, the reject-reject-reject philosophy (and outcome) were predictable.

This type of thing seems to happen periodically - the early 1990's in biotech were no picnic, but then Commissioner Lehman made an effort to reverse some of the nonsense (and the Bell and Deuel cases reversed the rest), and there was a period of relative sanity. Which KSR, Kubin, Bilski et al. have started to unravel.

But I don't think we can just impute power-hungriness as the only motivation - it's pretty pathetic if that was what Dudas was trying to do (and it might have been). But I think it more plausible that the Office (at least management from John Doll on down) believed that there was a crisis, and that crisis was missing beureaucratic targets (and the political criticism that came with the perception that the Office was mismanaged, that patent law was broken, etc.).

But the OMB stuff, and the RIM/NTP stuff may in fact have crossed way over the line. Unfortunately, like many evildoers in the past administration, the current one doesn't seem interested in settlind scores or righting wrongs, just with moving on.